Obama to the Rescue?

Having received 62.5 million votes, Barack Obama has earned a spectacular
personal victory and a clear mandate to bring some form of change to the United
States. Obama's decisive and masterly election campaign, where he first had
to outmaneuver the formidable Clinton machine, may bode well for his ability
to implement a government response of unprecedented magnitude. Time will tell
if this is a blessing or a curse.

In the short term, markets may likely rally on the grounds that election uncertainty
is over and that Obama and a Democratic Congress may institute massive infrastructure
spending along the lines of Roosevelt's New Deal. The larger question for investors
will be whether Government spending will make any difference to long term performance,
or whether the markets are already locked into a downward spiral that no amount
of pump priming can counteract?

There is increasing evidence that the severe recession or depression that
we have long forecast is now becoming reality. One has only to look inside
local shopping malls to see the physical effect of a visible loss of consumer
confidence. Once confidence is lost, it is exponentially more difficult to
regain.

To avoid a deep recession, as the government now hopes to do, massive intervention
would have been required - months ago. But, in the absence of extraordinary
political cooperation with the sitting President, we can assume no significant
changes in policy until Obama takes office in late January. When new programs
do come, the big question will be size.

The outgoing Bush Administration, which is responsible for creating the vast
asset booms, has thus far provided only $172 billion in a stimulus package
and some $700 billion in authorized asset purchases, mainly to bailout Wall
Street. Historically, these are large numbers, but today they are dwarfed by
losses already suffered by real estate and stock investors.

Losses incurred on the $14 trillion U.S. mortgage market will be significant,
and we can expect government initiatives to try to replace these vanished assets.
Of course, not all of these mortgages will go bad. But with rising corporate
and individual bankruptcies and increasing unemployment, an increasingly large
number will default.

Almost $5 trillion of these mortgages were 'sliced and diced' into the now
notorious mortgage-backed securities. Despite their 'toxic waste' content,
these so-called 'securities' were sold to conservative investors, including
U.S.-based pension funds, the solvency of which will be a major issue for the
Obama Administration.

But the losses don't end with the mortgage market. As we had forecast, state
governments and corporate America, including insurance, credit cards and auto
companies, have arrived in Washington, hat in hand, asking for taxpayer money.
Looming rapidly into sight is the more than $20 trillion of private sector
corporate and consumer debt. As is reflected in widening credit spreads and
the threatened bankruptcy of national business icons such as GM and Ford, this
debt is also being called increasingly into question.

How many trillions of dollars of Government spending will be necessary to
make whole the institutions and individuals swamped by this tide of credit
defaults? Is the government prepared to float multi-trillion dollar annual
deficits? Apparently so. If such sums are palatable to our creditors, then
perhaps the worst can be avoided.

Regardless of government action, we feel that the recession will be both severe
and long lasting. The resulting fall in corporate earnings will be reflected
in future stock prices. In light of this, we urge investors to be wary of claims
that U.S. stocks are cheap.

It is worth remembering that prior to the stock market crash of October of
1929, the Dow had peaked 381 earlier that same year. It was not until some
three years later, when severe recession and then depression took hold, that
the Dow reached its low of just 42, a fall of some 90 percent from its 1929
highs.

In a historical context, the Dow's recent fall from 14,164 to some 8,200 (a
decline of just over 40%) does not necessarily indicate that stocks are cheap.
Today, a 90% fall would bring the Dow down to a level of 1,416!

For a more in depth analysis of our financial problems and the inherent dangers
they pose for the U.S. economy and U.S. dollar denominated investments, read
Peter Schiff's new book For an updated look at his investment strategy order
a copy of his just released book "The Little Book of Bull Moves in Bear
Markets." Click here to
order your copy now.

For a look back at how Peter predicted our current problems read the 2007
bestseller "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to
order a copy today.

John Browne is the Senior Economic Consultant for Euro Pacific
Capital, Inc. Mr. Brown is a distinguished former member of Britain's Parliament
who served on the Treasury Select Committee, as Chairman of the Conservative
Small Business Committee, and as a close associate of then-Prime Minister Margaret
Thatcher. Among his many notable assignments, John served as a principal advisor
to Mrs. Thatcher's government on issues related to the Soviet Union, and was
the first to convince Thatcher of the growing stature of then Agriculture Minister
Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously
pronounced that Gorbachev was a man the West "could do business with." A graduate
of the Royal Military Academy Sandhurst, Britain's version of West Point and
retired British army major, John served as a pilot, parachutist, and communications
specialist in the elite Grenadiers of the Royal Guard.

In addition to careers in British politics and the military,
John has a significant background, spanning some 37 years, in finance and business.
After graduating from the Harvard Business School, John joined the New York
firm of Morgan Stanley & Co as an investment banker. He has also worked
with such firms as Barclays Bank and Citigroup. During his career he has served
on the boards of numerous banks and international corporations, with a special
interest in venture capital. He is a frequent guest on CNBC's Kudlow & Co.
and the former editor of NewsMax Media's Financial Intelligence Report and
Moneynews.com. He holds FINRA series 7 & 63 licenses.